Everyone who advocated for coverage of everyone with no regard to pre-existing conditions always included an individual mandate. I’ve blogged on this before, but can’t find it now. The idea is that if you don’t allow an insurance company to charge people different rates for varying health conditions, you must have the whole population in the insurance pool to keep the average cost down. This is because the healthy, who are by definition charged more to pay for the sick, won’t do it otherwise. So keeping them insured and paying premiums is vital to keeping costs from ballooning. More on that effect here.
So, the efficacy of mandates is quite important. Of primary importance is the individual mandate – this is getting the young and healthy individuals who are not currently insured into the pool. Austin Frakt has done some in depth analysis and thinks the mandates are sufficient. I hope he’s right because if not, this thing is going to come apart fast. He compares the mandates to Massachusetts where they seem to be effective (in the sense that north of 97% of the population has insurance and people are not gaming the system).
Tyler Cowen rightly brings up the enforcement issue – i.e. how will it be enforced. It seems that it will be tied to your tax return, but will not have the same collection mechanisms (i.e. wage garnishments, interest payments, etc.) as tax payments. That seems pretty strong. Then, finally, there is the cultural issue – i.e. does skipping the mandate somehow become a cultural norm (i.e. ‘cool’) or does it become looked down upon. The mandate is strong enough, that if there is cultural pressure as well, then it might just work.
Now, even this is no paradise. Massachusetts, even with it’s mandates “working” has seen it’s health care costs rise faster than the national average since it’s reform packages was passed.
Now, the business mandate is another story. It seems totally inadequate, according to John Cassidy:
Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)
In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.
Now, this could also be a feature, not a bug. Basically, what this means is that for most firms, starting with the smallest, will have pretty strong economic incentives to drop their health coverage and put people on the exchanges. What this does is create an individual market for health care insurance. Since, the employer-based care was one of the biggest problems with the system, this could be a pathway out.
Jesse
Travis
